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DBS maintains 'buy' on Econ Healthcare despite 'negative surprise' for 1H22 results

Atiqah Mokhtar
Atiqah Mokhtar • 2 min read
DBS maintains 'buy' on Econ Healthcare despite 'negative surprise' for 1H22 results
DBS has kept its target price for Econ Healthcare unchanged at 40 cents.
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DBS Group Research has maintained its “buy” rating for Econ Healthcare (Asia) with an unchanged target price of 40 cents despite the company reporting a 30% y-o-y decline in operating profit for 1HFY2022 ended September.

Calling the results a “negative surprise”, analyst Paul Yong, along with the Singapore research team highlight that the company’s operating margins for 1HFY2022 were weaker than expected, primarily driven by a decline in occupancy rates in Econ Healthcare’s Malaysia nursing homes from 75.5% to 53.8%.

See: Broker's Digest: ST Engineering, Frencken, CDL, Econ Healthcare (Asia)

In addition, losses in nursing homes in Pudu and Chongqing as well as rises in staff costs and consumables also contributed to the lower margins.

Nonetheless, DBS points out that Singapore operations remained resilient, with occupancy rates achieving a historical high of 96.4% in 1HFY2022.

The company’s 44-bed facility in Chongqing also commenced operations in May, with an average occupancy of 14 beds in 1HFY2022.

See also: RHB upgrades Venture Corp to ‘buy’ as it anticipates recovery moving into FY2025

Looking ahead, DBS anticipates Econ Healthcare to benefit from ageing population trends, with the private home industry forecast to grow at a compound annual growth rate (CAGR) of 13.6% in Singapore, 11.5% in Malaysia and 16.6% China between 2020 and 2024.

In Singapore, the commencement of Econ Healthcare’s build own lease centres in Henderson and Jurong by FY2023 and FY2027 respectively is expected to drive growth. Growth in Malaysia and China will come from the ramp-up of nursing homes in Puchong, Malaysia (138 beds), Chongqing, China (44 beds), Changshou, China (280 beds) and lastly, Chengdu, China (400 beds) by FY2023.

DBS is projecting Econ Healthcare to achieve a net profit CAGR of 13% between FY2021 and FY2024 and 15% over FY2021 to FY2026 as contributions from the Henderson and Jurong centres kick in.

See also: CGS International keeps ‘add’ call on Sea following solid 2QFY2024 performance across segments

For more stories about where the money flows, click here for our Capital section

Shares in Econ Healthcare closed up 0.5 cents or 1.64% higher at 31 cents on Nov 23.

Photo: Samuel Isaac Chua/The Edge Singapore

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